Correlation Between Pilbara Minerals and Standard Lithium

Can any of the company-specific risk be diversified away by investing in both Pilbara Minerals and Standard Lithium at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Pilbara Minerals and Standard Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pilbara Minerals Limited and Standard Lithium, you can compare the effects of market volatilities on Pilbara Minerals and Standard Lithium and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Pilbara Minerals with a short position of Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pilbara Minerals and Standard Lithium.

Diversification Opportunities for Pilbara Minerals and Standard Lithium

0.76

Correlation Coefficient

Pilbara Minerals  Standard Lithium

Poor diversification

The 3 months correlation between Pilbara and Standard is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Pilbara Minerals Limited and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium and Pilbara Minerals is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Pilbara Minerals Limited are associated (or correlated) with Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Pilbara Minerals i.e., Pilbara Minerals and Standard Lithium go up and down completely randomly.

Pair Corralation between Pilbara Minerals and Standard Lithium

Assuming the 90 days horizon Pilbara Minerals is expected to generate 1.29 times less return on investment than Standard Lithium. But when comparing it to its historical volatility, Pilbara Minerals Limited is 1.91 times less risky than Standard Lithium. It trades about 0.32 of its potential returns per unit of risk. Standard Lithium is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  146.00  in Standard Lithium on October 21, 2024 and sell it today you would earn a total of  22.00  from holding Standard Lithium or generate 15.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Pilbara Minerals Limited  vs.  Standard Lithium

Pilbara Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pilbara Minerals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Standard Lithium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Lithium has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Pilbara Minerals and Standard Lithium

The main advantage of trading using opposite Pilbara Minerals and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pilbara Minerals position performs unexpectedly, Standard Lithium can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Standard Lithium will offset losses from the drop in Standard Lithium's long position.

The idea behind Pilbara Minerals Limited and Standard Lithium pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.